Suze Orman: Follow Her Example, NOT Her Advice

Financial pundits and corporations dole out much advice about wealth building. However, the best advice can be obtained from following the examples of these institutions and guru’s rather than heeding their words.

Banks advise their customers to save in CDs and savings accounts, even though the interest rates are next to nothing– average 5-year cd according to bankrate.com is 0.86%. So where do banks save a major part of their Tier 1 core capital, which is the safest assets on their balance sheet? Not in cd’s or volatile equities. But in high cash value life insurance. For many banks it’s their largest asset class. According to the FDIC, banks are the largest purchasers of cash value life insurance in the United States. They own so much of it. Billions. The product was named bank-owned life insurance, or BOLI.

Suze Orman Advises to Invest in the Stock Market (But Her Money is Elsewhere)

One of the cornerstones of Suze Orman’s advice is investing in the stock market. But what does she do with her own money?

Only about 3% of her own portfolio is in the stock market, and with estimated assets of 32 million at the time of this interview, Suze told a reporter for the New York Times:

“I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care.”

Hmmm. This really helps illustrate how out of touch Orman is with her target audience. Not only that she wasn’t following her own advice, but that she apparently believed she should only put an amount in the stock market that she could easily afford to lose. The stock market’s biggest cheerleader isn’t willing to make the gambles she advises other Americans to make.

So where did she tell the reporter she put her own money? Into reliable, low-risk municipal bonds:

“I buy zero-coupon municipal bonds, and all the bonds I buy are triple-A-rated and insured so that even if the city goes under, I get my money. I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.”

Suze’s financial plan has been one of aggressive entrepreneurship followed by a slow, conservative saving strategy – she earns a large amount of money through her successful business models, then keeps it safe. Meanwhile, she tells people to put all their money at risk and out of their control.

Suze Orman’s Advice on Life Insurance

One of Suze Orman’s basics principals is that you should NEVER buy permanent insurance. She has been critical of whole life and other types of cash value life insurance to the point that she tells people if their advisor attempts to sell them whole life, or any other form of permanent insurance that they should change advisors! Yet when we look back on Suze’s career as an advisor, there is a shocking inconsistency…

Back in her early days as an advisor, Orman’s biggest area of expertise was… wait for it… Single Premium Whole Life Insurance!

It was the subject of her very first radio interview. It also formed the basis for her first series of retirement seminars, which she taught for years at companies like Pacific Gas and Electric.

Did she change her mind and recant her former advice on recommending whole life insurance? It doesn’t even appear that way. As recently as 2009, she had this to say in an interview with Success.com:

“I started to specialize in an investment called single premium whole life. It was one of the greatest investments around.”

She described the product as a legal tax loophole that allowed people to invest with minimal risk and high returns.

Orman opened her own firm in 1987 and used her mastery of single premium whole life to help her new PG&E retirees.

“It was the most brilliant thing I’ve ever done, and I made a fortune. And the people made a fortune.”

Even in this clip on Oprah, it seems she still holds whole life insurance in high regard:

(As a side note, Single Premium Whole Life, or SPWL, is a type of whole life insurance policy that may not work for those hoping to build and borrow against their cash value – due to its tax status, though it can be a good product for the right person in certain situations.)

Why the change of heart?

Perhaps she is not aware of how to structure or implement a non-MEC high-cash value policy via blending, which is common among most advisors and life agents for that matter.

Or perhaps her advice was changed because it would create a conflict of interest with her current business model.

Suze is now one of Ameritrade’s best promoters, pushing the trend of “buy term and invest the difference.” She also promotes SelectQuote, “America’s #1 Independent Term Life Sales Agency.” It would be awkward for her to recommend whole life, which is not sold through SelectQuote.

Suze Orman’s advice about living beneath your means, keeping your will current and putting people before money, are good common sense bedrock principles.

But she shares a big problem with all her colleagues in the Financial Entertainment Industry: she is a mouthpiece for her corporate sponsors. When asked why she would be a spokesperson for General Motors when new cars are a depreciating asset, she replied:

“I’m not in this for charity. This is a business, and anybody who thinks that it’s not a business is an idiot.”

The FDIC also hired Suze during the credit crisis when investor’s confidence was bottoming out. She sold the line that banks were perfectly safe, despite the fact that she puts her cash elsewhere!

As a celebrity, Suze Orman’s biggest product is herself and it is expedient that she maintain a high profile. However, her credibility is strained when her words and actions don’t match up.

Not your typical financial advice

This is why I am a proponent of Prosperity Economics – a philosophy that was derived from noting what the wealthy DO with their money… NOT what Wall Street corporations and big banks TELL Americans to do with their money!

Permanent cash value life insurance is one of the most misunderstood and underutilized products in the United States today. Which stems from misinformation of TV gurus and lack of education to the workforce of the industry itself even. Americans instead are told about increasing rosy projections promulgated by Wall Street, and not about the inherent dangers of excessive speculation.

The key to life insurance as a non-correlated asset (specifically one backed by an insurance company’s general account – so not variable life) for cash accumulation is all in how it’s designed.

If you’d like more information or to see a policy designed for you, please don’t hesitate to reach out.